Activity Based Costing, short ABC, was developed in the 1980s as it became apparent that the traditional management accounting practices could no longer meet the arising requirements due to a dramatically changing environment. Therefore, to detect this way towards ABC, this report will start to look at the book “Relevance Lost: The Rise and Fall of Management Accounting” of Johnson and Kaplan, where they introduce ABC as a recommendation to overcome the shortcomings of the traditional accounting method.
In the subsequent passages of this paper, it is examined how the initial ABC proposed by Johnson and Kaplan has been criticised and expanded. Several impacts on organisations of ABC and its later developments into ABM and ABB are then reported. And finally, all findings will be summarised and it is discussed whether the original criticisms of traditional management accounting techniques really have been outperformed.
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 2. Emergence of ABC
- 3. Evolvement of ABC
- 4. Impacts of ABC, ABB, and ABM
- 5. Conclusion
- 6. References
- 7. Appendices
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This report aims to explore the development and impact of Activity-Based Costing (ABC) in management accounting. It examines the criticisms of traditional management accounting methods, the emergence of ABC as a solution, and its subsequent evolution into related approaches. The report assesses whether ABC successfully addresses the shortcomings of traditional methods.
- The limitations of traditional management accounting in a changing business environment.
- The emergence of Activity-Based Costing (ABC) as a response to these limitations.
- The evolution of ABC into Activity-Based Budgeting (ABB) and Activity-Based Management (ABM).
- The impact of ABC, ABB, and ABM on organizational practices.
- An evaluation of whether ABC effectively addresses the shortcomings of traditional methods.
Zusammenfassung der Kapitel (Chapter Summaries)
1. Introduction: This introductory chapter sets the stage for the report by outlining the context of Activity-Based Costing (ABC) and its development within the field of management accounting. It highlights the limitations of traditional management accounting practices in the face of changing economic conditions and technological advancements, particularly during the 1980s. The chapter introduces Johnson and Kaplan's "Relevance Lost" as a key text that underscores these shortcomings and proposes ABC as a solution. The introduction clearly defines the scope of the report, promising to examine the evolution of ABC, its criticisms, and its impact on organizations, ultimately evaluating its effectiveness compared to traditional methods.
2. Emergence of ABC: This chapter delves into the reasons behind the development of ABC, primarily focusing on Johnson and Kaplan's arguments presented in "Relevance Lost." It analyzes how the increasing complexity of product lines and global competition in the 1980s exposed the flaws of traditional cost systems. The chapter highlights the problems of arbitrary overhead allocation, the reliance on outdated direct labor rates, and the resulting distortions in product costing. The core argument emphasizes that these traditional systems failed to provide relevant information for effective cost management and operational control. Johnson and Kaplan's recommendations for process control (flexible budgets and cost drivers) and product costing (short-term and long-term considerations) are introduced, laying the groundwork for the ABC methodology.
3. Evolvement of ABC: This chapter explores the evolution of ABC from its initial conception by Johnson and Kaplan. While acknowledging the initial benefits of ABC – such as more accurate allocation of overhead costs based on relevant cost drivers and inclusion of non-factory costs – the chapter focuses on subsequent refinements and adjustments to the model. It critiques the initial view that almost all costs are variable and requires allocation to products, suggesting areas where modifications to the initial ABC model were necessary for practical application. This section paves the way for a discussion of the subsequent development of related approaches like ABB and ABM in the following chapter.
Schlüsselwörter (Keywords)
Activity-Based Costing (ABC), Activity-Based Budgeting (ABB), Activity-Based Management (ABM), Management Accounting, Traditional Costing, Cost Drivers, Overhead Allocation, Product Costing, Process Control, Cost Management, Operational Efficiency.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this report?
The report focuses on Activity-Based Costing (ABC), its development, and its impact on management accounting. It examines the limitations of traditional costing methods, the emergence of ABC as a solution, its evolution into Activity-Based Budgeting (ABB) and Activity-Based Management (ABM), and its overall effectiveness.
What are the key themes explored in the report?
Key themes include the shortcomings of traditional management accounting in dynamic business environments; the rise of ABC as a response to these limitations; the evolution of ABC into ABB and ABM; the impact of these methods on organizational practices; and a critical evaluation of ABC's success in addressing the flaws of traditional approaches.
What are the limitations of traditional management accounting methods discussed in the report?
The report highlights problems such as arbitrary overhead allocation, reliance on outdated direct labor rates, and the resulting distortions in product costing. These traditional systems are criticized for failing to provide relevant information for effective cost management and operational control, particularly in the face of increasing product complexity and global competition.
How does the report describe the emergence of Activity-Based Costing (ABC)?
The emergence of ABC is largely attributed to the arguments presented in Johnson and Kaplan's "Relevance Lost." The report analyzes how the increasing complexities of the 1980s exposed the flaws of traditional cost systems, leading to the development of ABC as a more accurate and relevant approach to cost allocation.
What is the evolution of ABC described in the report?
The report traces the evolution of ABC from its initial conception, acknowledging its initial benefits (more accurate overhead allocation based on relevant cost drivers). However, it also discusses subsequent refinements and adjustments to the model, particularly critiquing the initial assumption that nearly all costs are variable and require allocation to products. The report further explains the development of related approaches like ABB and ABM.
What is the impact of ABC, ABB, and ABM on organizational practices according to the report?
The report assesses the impact of ABC, ABB, and ABM on organizational practices, although specific details of this impact are not fully elaborated in the provided preview. However, it suggests an evaluation of the effectiveness of these methods in improving cost management and operational efficiency is a central theme.
What are the key chapters and their content?
The report is structured with chapters covering an introduction, the emergence of ABC, its evolution, the impacts of ABC, ABB, and ABM, a conclusion, references, and appendices. The preview provides summaries for the introduction, the emergence of ABC, and the evolution of ABC, highlighting key arguments and developments in each stage.
What are the keywords associated with this report?
Key words include Activity-Based Costing (ABC), Activity-Based Budgeting (ABB), Activity-Based Management (ABM), Management Accounting, Traditional Costing, Cost Drivers, Overhead Allocation, Product Costing, Process Control, Cost Management, and Operational Efficiency.
What is the overall aim of the report?
The report aims to comprehensively explore the development and impact of Activity-Based Costing (ABC) within management accounting, ultimately evaluating its effectiveness in addressing the shortcomings of traditional methods.
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- Nadine Wiese (Autor), 2007, Activity-Based-Costing (ABC), Múnich, GRIN Verlag, https://www.grin.com/document/138213
